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GLOBAL MARKETS-European shares rise, dollar supported by higher bond yields
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GLOBAL MARKETS-European shares rise, dollar supported by higher bond yields
Dec 24, 2024 3:13 AM

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Stocks rise in holiday trading conditions

*

Dollar, US yields steady near milestone highs

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Chinese authorities pledge more support for economy

*

Fed outlook remains top of investors' minds

(Updates with European trading)

By Samuel Indyk and Rae Wee

LONDON, Dec 24 (Reuters) - European shares edged up on

Tuesday, though moves were subdued in a holiday-curtailed week,

while the U.S. dollar held near a two-year high helped by

elevated U.S. Treasury yields as investors bet on fewer Federal

Reserve rate cuts in 2025.

The pan-European STOXX 600 index was up 0.3%.

Britain's FTSE 100 and France's CAC 40 were both

up 0.5%. German stocks were closed for the Christmas holiday.

In Asia, Chinese stocks rose after sources told Reuters that

Beijing planned to issue a record amount of special treasury

bonds next year as it ramps up fiscal stimulus to revive a

faltering economy.

The CSI300 blue-chip index and Shanghai Composite

Index both ended 1.3% higher. Hong Kong's Hang Seng

Index advanced 1.1%.

The news came shortly after China's finance ministry said

authorities would ramp up fiscal support for consumption next

year by raising pensions and medical insurance subsidies for

residents as well as expanding consumer goods trade-ins.

Still, investors remain cautious on the outlook for the

world's second-largest economy, particularly as it faces the

threat of hefty tariffs from U.S. President-elect Donald Trump.

"China faces significant challenges entering 2025. The

ongoing real estate crisis has shattered consumer confidence

while a potential trade war with the United States could trigger

the worst growth slowdown in decades," said Ronald Temple, chief

market strategist at Lazard.

"Investor expectations have been raised and dashed more than

once in China in recent years, and 2025 may prove to be no

different. China's economic and market outlook might largely

depend on the speed and magnitude of government reforms."

Elsewhere, MSCI's broadest index of Asia-Pacific shares

outside Japan rose 0.4%, tracking Wall Street's

Monday gain.

FED FOCUS

After a recent run of central bank decisions, this week is

much quieter, leaving the rates theme the main driver of market

moves.

"Meagre news and data flow should keep the focus on a more

hawkish Fed," said Ipek Ozkardeskaya, senior analyst at

Swissquote Bank.

Markets are now pricing in about 35 basis points of easing

for 2025, implying one quarter-point rate cut and around a 40%

chance of a second.

The two-year Treasury yield, which is sensitive

to changes in Fed rate expectations, last stood at 4.3427%,

while the benchmark 10-year yield steadied near a

seven-month high at 4.5967%.

"Like markets, the Fed will need to consider U.S. policies

on tariffs and immigration in its inflation and growth outlook.

We believe the subtle slowing in the U.S. labor market will

still be the Fed's paramount concern," said analysts at Citi

Wealth.

"While always uncertain, our base case expectation for a

3.75% policy rate is unchanged. It's a far cry from the 1.7%

U.S. policy rate average of the past 20 years."

Earlier this month, the Fed cut its main interest rate for

third time this cycle, taking the Fed funds rate to 4.25%-4.5%.

Ahead of Trump's return to the White House in January,

global central banks have urged caution over their rate paths

due to uncertainty on how his planned tariffs, lower taxes and

immigration curbs might affect policy.

Data on Monday showed U.S. consumer confidence unexpectedly

weakened in December as the post-election euphoria fizzled and

concerns about future business conditions emerged.

In currencies, the dollar index held near a two-year

high at 108.19, having climbed more than 2% in December so far.

The euro eased 0.1% to $1.0391, while the yen

languished near last week's five-month low at 157.08

per dollar.

Japan's Finance Minister Katsunobu Kato on Tuesday

reiterated Tokyo's discomfort with excessive foreign exchange

moves and put speculators on notice that authorities are ready

to act to stabilise a faltering yen.

Spot gold was little changed at $2,613 per ounce,

having risen about 27% this year, heading for its biggest yearly

gain since 2010.

Oil prices edged higher, with Brent crude futures

rising 0.6% to $73.08 a barrel, while U.S. crude gained

0.6% to $69.67 per barrel.

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